The Methods And Policy Followed For Unallowable Cost Accounting

It is elementary and a policy of the government that all the costs incurred or proposed for any sponsored project must be in accordance with the terms and conditions as laid by the sponsor. The sponsor must know about the allowable as well as the unallowable costs of the project and therefore you should maintain a proper account for it. There is no way in which you can charge the sponsor for any unallowable cost. The primary purpose of the policy is to establish the required guidelines for identifying as well as defining the costs that are considered as unallowable for any reimbursements from any external sponsors or the Federal government.  

The Standard Followed      

Specific standard is followed for determining, identifying and for unallowable cost accounting along with other government regulations that are applicable for the project. The terms and conditions mentioned in the contract with the sponsor are also taken into consideration. Such policy is compulsory and is applicable to all departments of the government including schools, units as well as personnel of the university that is involved in administering the sponsored awards. Therefore, without this clause followed to the exactness of the set standards, you will not be able to get proper reimbursement from the government.     

The Implementation Procedure

The procedure followed for the implementation of unallowable cost accounting is laid by the specific board for setting cost accounting standards of the country. It requires all those educational institutions that receive high amount of federal funding to comply with such standards of cost accounting. Add to it, for all federally funded awards, the university must also abide by all the rules and requirements as laid in the budget and its controlling authority. The principle followed by the educational institutions is on the basis of such standards which help in the determination of the allowable cost of work performed for the project for any sponsored programs and for the administrative cost rate calculation along with the indirect costs that are included in the facilities of the university.   

The Purpose Served

The purpose of such standard is to help for accurate auditing, facilitating in negotiations, and also in the settlement and administration of federal awards. The guidelines that are established covers areas like the identification of all the costs which are specifically described as unallowable. It also covers the treatment to be followed for cost accounting for the identification of unallowable costs so that consistent application of ethical and perfect cost accounting principles is promoted. It is applied for all the costs that are incurred, both allowable as well as unallowable.

Unallowable Costs May Vary

There is no reason to believe that the costs and activities that are identified and considered as unallowable for a federally sponsored program will always be the same for any kind of project. The cost which is unallowable by the federal government may be appropriate, necessary and allowable for a non-government funded project. Proper coding for unallowable cost is necessary for quick and easy identification and exclusion while calculating the indirect cost and prevents it from being included in the billing, proposal and claim to a federal sponsored award. Methods applied for identification of such costs are simple and also very effective. There may be separate accounts in the general ledger and accounting records and cost analysis done to review all expenses, direct as well as indirect.